Who'da Thunk It? Trade Figures Send Stocks Stumbling
By Justin Lahart
Senior Writer
8/19/99 1:17 PM ET
If you told someone last week that the stock market would fall because the June trade deficit grew by more than people thought it would, you'd have been asked if you were on crack. Today that comment gets taken with a straight face.
Nobody can remember the trade numbers having an impact on the stock market before. Heck, they hardly ever have much of an effect on the dollar. But at a time when the stock market is spending a lot of time watching the deteriorating greenback, and the greenback is on weak technical footing, this morning's announcement that the trade gap ran to $24.6 billion is having an outsized effect.
The record trade deficit sounded the all-clear for a currency market that already seemed intent on testing the 110-yen level on the dollar. Stocks followed the dollar's swoon from the opening bell, and have stayed solidly in the red all day. "The dollar's getting smacked around, and that brings up some inflation fears and higher-interest-rate fears," said Jim Benning, trader at BT Brokerage. It also disquiets a market worried that capital is flowing away from the U.S. to recovering foreign economies.
"It doesn't look like anything too dramatic, but we're kind of slip-sliding away here," said Benning.
With the dollar trading down 0.86 yen to 111.09, the Dow Jones Industrial average was lately off 82, or 0.8%, to 10,909. The broader S&P 500 was down 15, or 1.1%, to 1318. The tech-swathed Nasdaq Composite Index was down 38, or 1.4%, to 2620 and TheStreet.com Internet Sector index was down 10, or 1.7%, to 557. The small-cap Russell 2000 was down 2, or 0.5%, to 431.
Yet market players cautioned against drawing too strong a relationship between the dollar and stocks. It is late August and the people who aren't on vacation are not trading too much ahead of next Tuesday's Fed meeting. With volume thin, it's good not to trust to much in anything. It doesn't take much to make the market skip a hundred points higher or lower in that kind of environment, said one money manager. "The bears are just pulling on the rope a little bit stronger."
"The general link between the dollar and the market is somewhat nebulous," said Steven Goldman, market strategist at Weeden in Greenwich, Conn. "At times it's highly correlated, at others it isn't."
Goldman supposes that the dollar really is playing something of a role in the market these days, but that it pales compared with interest rates. The dollar weakness "is showing that there's strength overseas," he said. "The abundance of liquidity that washed up on our shores is diminishing. It can affect equity prices -- especially when you have somewhat lofty valuations and the Fed being aggressive."
So far, though, the dollar weakness has only had a limited effect on the bond market, noted Goldman. That suggests that its final effect on equities may be muted.
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